The shortcomings of digital banking in Bangladesh


When it comes to digital finance or banking, there was a time when people thought that only meant chatbots or paperless transactions. This era and this notion have changed drastically due to the inevitable shift in people’s mindsets as a result of the global pandemic.

Providing finance primarily through non-physical means, which include application-based application systems, no printed documents, no forms to fill out, and transactions through e-wallets, is true digital finance.

According to the UN, digital finance can help 70-100 million affected people around the world who are being pushed into extreme poverty due to the Covid-19 outbreak. But only if we understand and implement digital finance correctly and eliminate the myths.

Before highlighting them, we must realize that digital finance in Africa and Asia-Pacific are poles apart. Therefore, expecting a one-size-fits-all solution simply won’t work. It depends on various factors such as digital literacy rate, proportion of young people, rate of digital adoption, government regulations, transaction behaviors, impact of finances on lifestyle and disposable income of users, and above all, the frequency with which the market needs funding.

In simple terms, with the most basic financial services consisting of savings, investments, payments, and credits, the financial system consists of overlapping savers, borrowers, investors, and taxpayers. Opening an account without being physically present in the bank branch is the first step towards going digital.

Perhaps providing financial access through digital channels would generate more returns than just opening accounts. Moving transactions through digital channels is, indeed, the real challenge here. Let us refer to the 2016 report of the Brookings Financial and Digital Inclusion Project (FDIP) which analyzes the access and use of financial services in 26 politically and economically diverse countries, Bangladesh happens to be one of them.

The report revealed a country dashboard based on four dimensions: country engagement, mobile capability, regulatory environment and adoption rate. Kenya was 1st with 84% while Bangladesh was 19th with a score of 66%. With a population of 25 million adults, Kenya’s adoption rate was 78%; however, Bangladesh achieved 39% adoption with an adult population of 106 million.

Lack of account penetration strategy for low-income groups by banks and adults not using online payments for bills and purchases lowered Bangladesh’s score. Therefore, it has become imperative to quarantine digital finance mistakes to blue pencil correct these two major shortcomings.

That only people with bank accounts need financial products and services the most is a fundamental myth. In fact, people who don’t have bank accounts may need more financial access than those who do. The Global Findex database indicates that 62% of the world’s adult population have bank accounts; of which 27% save in banks, 18% receive salaries and pay bills and only 11% borrow from banks.

So, have we designed digital finance for those who don’t have a bank account? The approach of collecting basic identity information through physical documents to “know your customer” is slowing the growth of digital banking or finance. It may seem presumptuous to some, but digital identity or traceability can be an essential part of digital banking.

Coming back to digital finance, do we really need an account at this particular bank to finance borrowers? Couldn’t we just transfer and settle from another bank? Banks should be “comfortable” if you, as a borrower, transact at that bank.

Also, it’s time to think from a customer’s perspective, not a bank’s. Financiers always believe in papers and handwritten signatures in all procedures, from the application to the conclusion of the transaction. Each of these processes, on paper, requires a separate application and feeds into a separate silo in the back office. This can be very irritating for customers, especially for business customers requiring a large number of forms.

Moreover, banks need to optimize the system for better customer experience to save customers time and hassle.

For example, introducing a mobile app with the highest possible pre-populated sections from the internal system and using an API-based service layer to scale the data can be the first steps.

API (Application Programming Interfaces) is essentially software that acts as an intermediary between other software, Google explains. APIs can certainly help them connect to external address lookup and aggregation services, and avoid asking for the same information twice.

Before going digital, forget the monolithic banking structure and one-size-fits-all approach. The banks have a back-office for production, a semi-office and a front-office for distribution. While production demands the predictability and long-term impact of any change, distribution prefers the agility and freedom to respond to customer needs.

Digital finance becomes difficult when there is a single integrated system that requires a change in distribution to add another in production. Although the flow of data between these two ends is critical, it will yield better results if changes at one end do not affect the other.

People like to use smart devices to get things done because of the conveniences and quick achievements they offer. Whether it’s grabbing a cup of coffee or buying an apartment, in almost every activity in life, we prefer a hassle-free experience.

Initially, the big players characterized digital banking customers as niche markets.

However, with the rise of robotics and machine learning in credit history, corporate bulk payments, use of mobile financial services in G2P transactions, bill collection, and growing demand for research of online customers, the markets initially qualified as niches turn out to be the general public.

Before jumping in to announce, think about what more do we need – a super app for digital devices or lavish desktops?

Adnaan Jamilee is a Financial Services Professional

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.

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